Contract Caterers: Is Competitive Intensity Rising? Assessing Capex ROIs, Historical Precedents and Data Centres: No Cause For Concern Yet

Research evidence excerpt

Contract Caterers: Is Competitive Intensity Rising? Assessing Capex ROIs, Historical Precedents and Data Centres: No Cause For Concern Yet

FoundationMoutsourcing has seen decades of growth, 75% of the market is either self-operated

or run by smaller operators, and the structural drivers behind the trend remain

intact (not just cost saving but complexity eg labour availability, inflation, health and

safety, allergens, sustainability, digital capability, food waste, compliance, employee/

student/patient experience and the ability to invest in technology). We have also

looked at the largest 50 US hospitals and colleges as a microcosm of this, and find

that the Big 3 run 40-50% of these institutions, with Compass taking strong share in

recent years. See analysis here.

3. Sizing the risk: Aramark's new business momentum has been strong for several

years, so the recent change is Sodexo's more aggressive language, and Compass's

recent net new sales slowdown. Most investor concern is the impact of Sodexo on

Compass. Sodexo is a $27bn revenue business, and we think ~60% overlaps with

Compass (FM is 34% of revenue at Sodexo vs 15% at Compass, Sodexo is more

skewed to Europe than the US, and is in nearly double the number of countries 45

vs 26). Sodexo’s net new is running around zero, and it used to target 2-3% net new

contract sales. If we assume it gets to +2%, and that half of that would have gone to

Compass, then using the 60% overlap that is $160m of revenue loss at Compass.

This is c.30bps off its 4-5% net new target, so not helpful, but not that material. See

analysis here.

4. Historical precedents: Over the last 20 years, there have been several periods of

heavy client price pressure and renewed competitor aggression (2007-10, 2012-13,